Interest rates WILL go up next week … and maybe after that

There’s general agreement amongst brokers and other finance sector professionals that the Bank of England will next week raise interest rates for the 14th time in a row.

This is despite relatively good inflation figures which showed the headline rate was lower than expected in June at 7.9 per cent, with most analysts feeling it could fall below 7.0 per cent next month. But while underlying measures of ‘core inflation’ dipped too, food price inflation remained stubbornly high at a 17.3 per cent annual rise.

And overall UK inflation remains the highest in the G7 advanced countries and is falling more slowly.

Most mortgage experts say that a rise in base rate next week is still firmly on the cards.

Lewis Shaw of Shaw Financial Services says: “This should mean the Bank of England only raises rates next month by 0.25 per cent, so for mortgage holders this is great news. I’m going out on a limb here to say fixed mortgage rates have peaked. We may see a little shuffling around but the continued painful increases are over. That doesn’t mean that we’re out of the woods because monetary policy takes a long time to show up, however it does mean we can now start to see the faint glimmer of a light at the end of the tunnel.”

Jonathan Burridge at hybrid mortgage adviser We Are Money comments: ”If this is a trend, then we should start to see some easing of pricing, but let's not get too carried away just yet. Inflation is still too high, so the Bank of England's rate policy is unlikely to change and traders have responded ahead of this news, so any adjustment will be slow and incremental."

Amit Patel, adviser at mortgage broker Trinity Finance, sees it this way: "Some welcome news just at the start of the school holidays. However, will this announcement be enough for the members of the MPC at the Bank of England to pause and reflect before making the sensible and right choice in pausing their agenda of rate hikes? I'm not too sure.”

Elliott Culley, director of Switch Direct Mortgage: "What happens next is so important for the housing sector. I think we will still see a rate increase in August, but the Bank of England might start thinking they don't need to go as high as 6.25 per cent by the end of the year as has been predicted. This could lead to a reduction in swap rates and ultimately mortgage rates, but we are not out of the woods just yet. Ultimately there are signs the rate rises are working, so the hope will be this translates into the decision-making of [Bank of England governor] Andrew Bailey and the committee."

Philip Dragoumis, owner of London-based wealth manager, Thera Wealth Investment, states:  "Finally some good news on inflation, or at least better than expectations. Expect the pound to come under pressure and a rally in UK bonds. 6.9 per cent core inflation is still high but at least it's heading in the right direction. The Bank of England should pause but won’t. Another three months like this and mortgage rates will look very different."

But there are some analysts and mortgage experts who feel the figures are enough - just - to change the Bank of England’s course.

Russell Maggs of Maggs Financial Services, says: "The Bank of England should now hold the 5.0 per cent base rate until the end of the year to give some stability in the markets. However, the days of super-low interest rates are behind us and we need to get used to living in a world of higher monthly mortgage payments. We're also likely to see increased options in the market to fix monthly payments for the term of the mortgage as you see in the US and on the Continent."

Riz Malik, director of independent broker R3 Mortgages: “It is a shame that August's base rate meeting is before the release of August's inflation data, which could set the scene for the rest of 2023. This data should take into account the reduction in energy prices that occurred in July. If this leads to another substantial decrease, it could potentially curb aggressive rate hikes for the foreseeable future."

And Craig Fish at mortgage broker Lodestone says: "There is a god, after all. This fall in inflation and core inflation is bigger than expected and it's expected to continue in this direction for the remainder of the year. It's to be noted, though, that this has nothing to do with the Bank of England's interest rate increases so I hope that they don't try to take credit for it. I sincerely hope that the MPC stop their ridiculous and futile approach to this problem, and ease off with the rate increases now.”